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Would Obama’s Tax Plan Prompt Companies to Repatriate Cash?

  • By Andrew Deichler
  • Published: 2/4/2015
President Obama’s 2016 budget plan is taking aim at a loophole that allows U.S. companies to hold a surplus of cash overseas without paying taxes on it. But while the plan could bring money back to the United States, it does little to encourage businesses to actually invest their offshore cash back home.

Thanks to a loophole, U.S. businesses can avoid paying cash earned overseas as long as they keep it there. For many organizations, this is preferable to bringing the cash home and paying a 35 percent tax on it.

Additionally, the plan would mandate U.S. companies pay a one-time, 14 percent tax on the $2.1 trillion they have in stockpiled offshore profits. Companies would then face a 19 percent minimum tax on future foreign profits, regardless of whether it is repatriated. President Obama’s proposal would also see the top rate lowered from 35 percent to 28 percent.

The tax proposal would raise $238 billion, which would help pay for a six-year, $478 billion plan to upgrade America’s infrastructure.

It is AFP’s position that tax policy that harms the competitiveness of the U.S. will only encourage companies to further expand their investment and hiring in other countries. Therefore, AFP strongly advocates changes to the corporate tax system that would allow the U.S. business—and thus the entire U.S. economy—to compete effectively with other nations.

“What we need is comprehensive corporate tax reform so that the U.S. can be competitive from a global tax perspective,” said Craig Martin, executive director of the Corporate Treasurers Council. “If we joined the rest of the world in a territorial tax system, then there would be no need for one-off taxes. And then U.S. companies would be more likely to repatriate overseas earnings and the U.S. would gain more tax revenue.”

On the other hand, the proposal could theoretically prompt companies to bring more cash back to the U.S. simply by exploiting different loopholes. A new study shows that U.S. based multinationals actually move an average of $12 billion in taxable income back to the U.S. every year without paying taxes. So by taking advantage of those loopholes, companies could start moving cash back to the U.S. to avoid a 19 percent tax.

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